First Estimate of FY26 Real GDP growth comes in at 7.4%

30 Jan 2026 , 11:37 AM

UNDERSTANDING THE GDP PUZZLE IN INDIA

We all use GDP growth as a proxy to gauge how fast the economy is growing. But, what exactly do we understand by GDP? Gross domestic Product (GDP) is the aggregate of all goods and services produced in India. Let us say, in a family of 2, the husband produces goods worth ₹20 lakhs a year and the wife generates services of ₹23 lakhs a year. The GDP of that household is ₹43 lakhs for the year. Just expand this logic and if you take the aggregate output of all the people in India, you get the national GDP.

The GDP is a flow. If we say that the GDP for FY25 was $3.5 Trillion, that is the value of goods and services produced in one year. The next year, we will again see similar or higher GDP generated. High growth in GDP means the economy is booming, the government is getting more of tax revenues, income levels of households are increasing and more jobs are being created. These are the 2 things to remember about GDP. Firstly, it is the value of all goods and services produced in a period (quarter or year). Secondly, GDP is a flow that gets generated when people indulge in productive activity; producing goods or services.

THREE MAJOR SEGMENTS OF INDIAN GDP

Let us first look at the broad components of GDP in India. It is divided into the primary sector, secondary sector, and the tertiary sector. The primary sector refers to all output that comes from the earth. That includes agriculture, mining, floriculture, horticulture, cattle farming, fishing etc. The secondary sector is largely about change in form and includes manufacturing of goods, utilities (power, water, gas), and construction.

The Tertiary sector is the largest services sector; which includes trade, hotels, financial services, defence services, public administration, realty services, transport, communications etc. As a share of GDP, the break-up is Primary Sector (18.4%), Secondary Sector (27.0%), and Tertiary Sector (56.4%). To this figure, the net trade deficit is adjusted to arrive at the overall GDP number. Exports boost GDP and imports bring down the GDP.

REAL VERSUS NOMINAL GDP; GVA VERSUS GDP

When we talk about GDP growth, the normal reference is to Real GDP. We will come to that later. Also, when you talk of GDP growth, it is generally yoy growth. FY26 GDP growth is with reference to FY25. Similarly, Q2FY26 GDP growth is always with reference to Q2FY25. We have seen how GDP is arrived at as the aggregate of goods and services produced. That is called the nominal GDP. Nominal GDP is important as it shows the volume of economic activity in the country. It is the level of Nominal GDP that determines income levels of people, government taxes, and jobs creation. When this nominal GDP is adjusted for inflation, the net figure is the real GDP. When we say GDP, we often refer to Real GDP.

How does GDP differ from GVA? GVA is a concept that was introduced just a few years back to give a purer picture of growth. Out of the GDP, if you remove the impact of indirect taxes and subsidies, the residual figure is GVA. It is much purer and unalloyed version of GDP as the GVA only considers the value of the goods and services produced, without being distorted by the impact of indirect taxes and subsidies. However, while GVA has a lot of analytical value, it is GDP that is still a lot more popular. Let us now turn to the estimates of real GDP and Nominal GDP and GVA for the full year, FY26.

1)    REAL GVA AND REAL GDP (FIRST ADVANCE ESTIMATE) FY26

Here is a quick look at how the real GDP growth looks for FY26.

Sector	FY24	FY25	FY26 (FAE)	FY25 (%)	FY26 (%)
Primary Sector	26,97,294	28,15,689	28,90,621	4.4	2.7
Agriculture, Livestock, Forestry	23,67,287	24,76,805	25,54,071	4.6	3.1
Mining & Quarrying	3,30,007	3,38,884	3,36,550	2.7	-0.7
Secondary Sector	46,46,499	49,31,228	52,57,858	6.1	6.6
Manufacturing	28,25,935	29,53,647	31,61,364	4.5	7.0
Electricity, Gas, Utility Services	3,82,776	4,05,296	4,13,702	5.9	2.1
Construction	14,37,788	15,72,285	16,82,792	9.4	7.0
Tertiary Sector	88,07,683	94,40,529	1,03,01,349	7.2	9.1
Trade, Hotels, Transport	29,94,536	31,76,830	34,15,552	6.1	7.5
Financial, Realty	38,14,586	40,88,072	44,94,341	7.2	9.9
Public Administration, Defence	19,98,561	21,75,628	23,91,455	8.9	9.9
Real GVA	1,61,51,477	1,71,87,446	1,84,49,828	6.4	7.3
Real GDP	1,76,50,591	1,87,96,955	2,01,89,919	6.5	7.4
Data Source: MOSPI (Figures are ₹ in Crore) – FAE is First Advance Estimates

 

Real GDP growth for FY26 is estimated to grow by 7.4%, compared to 6.5% in FY25. Both the real GDP and real GVA are slated to be 90 bps higher than last year. A word of caution.  This is the first advance estimate (FAE) of FY26 GDP. There will be a second advance estimate on 27-Feb along with Q3-GDP actual numbers. The actual full-year GDP will only be known by the end of May 2026. However, a quick glance at the real GDP growth table tells us some interesting stories about the composition of the GDP for FY26.

The primary sector comprising of agriculture and mining is likely to grow at 2.6% in FY26, compared 4.4% in FY25. That could have implications for farm incomes. However, the positive thrust has come from industry and services. Manufacturing for FY26 is slated to improve from 4.5% to 7.0%. Despite lower growth in utilities and construction, the second sector will still grow 50 bps higher at 6.6%. Services sector is likely to grow 190 bps better at 9.1% in FY26, with positive cues across financial services, hotels, realty, and defence.

2)    NOMINAL GVA AND NOMINAL GDP (FIRST ADVANCE ESTIMATE) FY26

To get an unbiased growth view, it is best to look at the nominal growth numbers

Sector	FY24	FY25	FY26 (FAE)	FY25 (%)	FY26 (%)
Primary Sector	54,10,210	59,26,078	59,36,462	9.5	0.2
Agriculture, Livestock, Forestry	48,77,867	53,85,291	54,27,908	10.4	0.8
Mining & Quarrying	5,32,343	5,40,788	5,08,554	1.6	-6.0
Secondary Sector	70,89,650	76,03,402	81,71,692	7.2	7.5
Manufacturing	39,21,596	41,69,419	45,54,580	6.3	9.2
Electricity, Gas, Utility Services	7,66,435	8,06,974	8,17,265	5.3	1.3
Construction	24,01,618	26,27,009	27,99,847	9.4	6.6
Tertiary Sector	1,49,13,028	1,64,92,552	1,82,39,719	10.6	10.6
Trade, Hotels, Transport	48,28,505	52,57,396	56,40,741	8.9	7.3
Financial, Realty	62,44,153	68,81,866	76,57,155	10.2	11.3
Public Administration, Defence	38,40,370	43,53,290	49,41,823	13.4	13.5
Nominal GVA	2,74,12,888	3,00,22,033	3,23,47,873	9.5	7.7
Nominal GDP	3,01,22,956	3,30,68,145	3,57,13,886	9.8	8.0
Data Source: MOSPI (Figures are ₹ in Crore) – FAE is First Advance Estimates

 

The better-than-expected real GDP growth was largely due to low inflation benefits. That is evident from the fact that nominal GDP growth for FY26 at 8.0% is likely to be much lower than 9.8% recorded in FY25. While nominal growth of primary sector and secondary sector is likely to be flat, the pressure is in the primary sector which is likely to see nominal GDP growth fall from 9.5% to 0.2%. That means solid pressure on farm incomes.

There is one more area of concern. The lower nominal GDP growth is also compounded by the weakness in the rupee. That impacts the GDP value in dollar terms. At ₹357.14 Trillion nominal GDP for FY26, we are looking at $3.96 Trillion of nominal GDP for the full year. The actual number will expand when you add the foreign trade and transactions, but the journey to $5 Trillion GDP just got tougher for India. That is the bottom line.

KEY TAKEAWAYS FROM THE FIRST GDP ESTIMATE FOR FY26

Here is what we gathered from the first advance estimates (FAE) of FY26 GDP.

• Compared to other large economies globally, the FAE suggests that Indian real GDP will grow at 7.4%, again making India the fastest growing large economy.
• While real GDP growth is higher in FY26, the nominal GDP is lower than FY25. This shows that most of the real GDP gains in FY26 are from historically low inflation.
• Full year real and nominal GDP growth indicate that Q3 and Q4 should be relatively tepid after a strong first two quarters of growth.
• There will be the second advance estimate on 27-February and the final GDP growth for FY26 will only be known by the end of May 2026.
• For the second FAE, the base year will be changed from 2011-12 to 2022-23 as already announced. This is also likely to give a boost to the GDP figure for FY26 by 10 bps.
• With fiscal deficit likely to overshoot marginally, the change in base year will boost the nominal GDP. That will ensure that government protects 4.4% GFD to GDP ratio.
• The good news from the GDP data is two-fold. Firstly, government consumption has picked up in FY26. Secondly, capital formation picked up by 70 bps to 7.8%. These two factors will be value accretive for national income data.

 

LLM Summary The first advance estimates (FAE) suggests that for FY26 also, India will continue to be the fastest growing large economy.  However, the support to real growth came less from nominal GDP growth and more from low inflation levels. For the second advance estimate to be released on 27-February 2026, the base year will shift from 2011-12 to 2022-23. Even with no major change, the real GDP growth is likely to improve by 10 bps to 7.5% due to the base year shift. There are some green shoots in the FAE GDP data like improving government consumption and a greater thrust on capital investments. Both are likely to be long term positive for GDP growth in India. While real GDP growth remains robust, there are concerns on nominal growth. Unless the nominal growth riddle is addressed, the Indian economy could face challenges on the consumption, income generation, and tax revenue front.